Steel prices are very high at the moment because of substantial Chinese demand. Ukraine produces much steel and benefits from the higher prices.
Demand for iron and steel has spiked in recent months to the highest levels in several years, primarily due to increasing demand from China and the American plans for extensive infrastructure renewal under Joe Biden. Ukraine has a big production of steel and is currently benefitting from the higher prices worldwide.
Companies such as Metinvest are experiencing huge price jumps over the last year: pig iron +71 percent; billet +77 percent; steel slab +104 percent; hot-rolled coil steel +118 percent, according to UBN. However, prices are soon expected to drop, estimates Dmytro Khoroshun, an analyst from Concorde Capital, to UBN.
“(Steel price) levels should remain exceptionally elevated in the short term, even though we expect a correction later in 2021,” says Khoroshun.
Ferrexpo, which is a company in Ukraine producing iron, is planning to double its production of iron pellets in Ukraine by 2030 with a new two billion dollar investment, while other companies are doing what they can to increase output as well. Dniprospetsstal is Ukraine’s leading producer of stainless steel, and they have increased production by 19 percent from January to April, compared to the same period last year.
The Ukrainian sector is doing okay
The Ukrainian production of steel production balances around 1906 thousand tonnes per month but used to be much higher. Production took a hit after the financial crisis in 2008 and again in 2014 when the war in Eastern Ukraine broke out.
Steel Production in Ukraine over the years in thousand tones:
“The sector is cyclical, and market recessions occur every 5–7 years. Companies are ready for this. Though, when market recessions coincide with an increase in tax pressure, a rise in tariffs for services of natural monopolies, and so on, the domestic industry suffers much more than our main competitors,” said Andrii Tarasenko, GMK Center Chief Analyst, to EBA, referring to how an increased tax pressure in Ukraine also have limited production.
Tarasenko, however, says that the Ukrainian steel companies are doing well compared to others, but that they are affected by growing protectionism in certain countries. While the EU is decreasing its demand, China is taking more and more, leading to new possibilities for Ukrainian producers. However, that might also be short-lived. Tarasenko estimates that the Chinese demand will decline later in 2021, and Ukraine will need to find new markets.
Experts: Chinese demand will decline
It is not only Tarasenko who believes that the Chinese demand will decrease later this year. Fitch Ratings writes that Chinese demand will decrease over the summer due to “subdued construction activity,” but prices will, however, stay high for some time.
“A combination of high iron ore prices and new environmental regulations that limit supply are likely to keep the steel price elevated. We expect this to benefit larger steel producers that have environmentally compliant facilities and are more resilient to the production cuts,” Fitch Ratings writes.
The site MoneyControl also points out that the steel production in India is declining because the demand for oxygen for Covid-19 has resulted in a lack of oxygen in the country’s steel production, leading to a decline in output. It will also affect global prices.
“Currently, the oxygen supply is diverted for medical purposes, leaving little room for industrial supply,” the site writes, “Oxygen is crucial in various steel production processes like blast furnaces lancing and gas-cutting. Its shortage has badly hit steel production, and the industry would be expecting the issue of supply shortage to be restored immediately to increase production and make the most of the rising international demand.”